The Federal Reserve on Wednesday cut interest rates by 25 basis points to a range of 4.25% to 4.5% at its final meeting of the year and signaled it would slow the pace of its rate cuts.

Along with its policy announcement of cutting the federal funds rate to a range of 4.25% and 4.5%, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot” that outlines the policy targets represents decision makers. Expectations about where interest rates might move in the future.

Fed officials expect the key interest rate to be at 3.9% by the end of 2025, above the Fed’s previous September forecast of 3.4%. Aside from the huge 50 basis point cut in September, the Fed has made moves in 25 basis point increments over the last year or so, suggesting the central bank expects to cut rates two more times in 2025.

Officials expect there will be two more cuts in 2026, bringing the key interest rate down to 3.4%. In September, central bank officials set a maximum interest rate of 2.9% in 2026.

The SEP said the Federal Reserve expects core inflation to peak at 2.5% next year – higher than the September forecast of 2.2% – before falling to 2.2% in 2026 % and cools to 2.0% in 2027.

Officials expect the unemployment rate to rise slightly to 4.3% in 2025, below the previous forecast of 4.4%. Unemployment is expected to remain at this level through 2026 and 2027.

The Fed raised its previous forecast for U.S. economic growth, expecting the economy to grow at an annual rate of 2.1% next year before slowing to 2.0% in 2026 and 1.9% in 2027 % cools down.

In September, officials expected GDP growth of 2.0% in 2025, 2026 and 2027. They also revised their previous forecast of 2.0% growth in 2024 to 2.5%.

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